The decline and fall of elite multispecialty medical groups

The failure of Geisinger Health System, which lost $842 million in 2022 and disappeared into a new Kaiser subsidiary called Risant, sent shockwaves through the health care community in the spring of 2023. Founded in 1919, Geisinger was in the vanguard of the so-called “value-based care” movement. It sponsored a regionally significant 600,000-member health plan and served as the home of an exceptionally high-quality 1,600-person multispecialty medical group. While Covid-related financial pressures, fateful management decisions, and troubled regional economic conditions all contributed to Geisinger’s demise, federal health policy may have played a crucial role — and it could bring down other multispecialty groups in 2024 and beyond.

Geisinger is only the latest member of an elite group of large regional multispecialty medical groups to lose their independence and join large hospital systems or corporations. Virginia Mason in Seattle was fatally damaged by the sad end of its decades-long partnership with Group Health in 2016 and is now part of CommonSpirit. Wisconsin’s Marshfield Clinic agreed to merge with Duluth-based Essentia Health in October 2022 after a lengthy string of operating losses, though the merger fell apart recently. Central Texas’ Scott and White was absorbed into Baylor in 2013. Everett Clinic in Seattle, Atrius, and Reliant (formerly Fallon) in Massachusetts, HealthCare Partners (with the Everett Clinic, both part of DaVita Medical Group), Kelsey-Seybold in Houston, and a host of others are now part of UnitedHealth Group’s vast Optum Health physician network. Billings Clinic in Montana, Carle Health in central Illinois, and Guthrie Clinic in north central Pennsylvania are all struggling financially and may not survive as independent organizations.

Many of these elite multispecialty groups were founded by alumni or admirers of the Mayo Clinic in the 1920s and 1930s. They grew in the teeth of opposition by traditional mainstream medicine, including the American Medical Association and state medical societies, which viewed group practice as a malignant form of medical socialism. Graduating clinicians were attracted to these special physician-led organizations by the ethos of collegiality, collaboration and high-quality, conservative clinical decision-making. They were also drawn by the charismatic medical leaders who recruited them. Though most of these groups operated hospitals and later some offered health plans, high-quality physician care was their core business.

Multiple factors contributed to the accelerating die-off of these groups in the past decade. One major contributor has been the economic decline of the rural economies surrounding many of them. This decline tilted their payer mix toward Medicare and Medicaid as well as increasing the number of uninsured and underinsured patients. In addition, rural labor markets have been especially hard hit by the post-Covid clinician shortage. They may also have lost business to wealthier regional academic health center competitors, which gained share during the past 12 years.

A major reason that two major actors in this elite peer group, Mayo and Cleveland Clinics, have survived is that they successfully branched — Mayo Clinic into the growing Phoenix and Jacksonville, Florida, markets and Cleveland Clinic into northeast Ohio, south Florida, and the United Arab Emirates.

But federal health policy also played a decisive, and destructive, role. As their local communities and regions aged, and younger people moved away, these multispecialty groups were more dependent on the Medicare Part B fee schedule, whose payments to clinicians have lagged inflation by 26% since 2001. Medicare Part B fees also serve a crucial role as the reference standard for commercial insurance and Medicare Advantage (MA) rate negotiations. So Medicare’s inadequate adjustment for inflation echoed in lagging commercial insurance and MA rate payments.

The far-below-inflation Part B fee schedule updates did not merely damage the large groups; they also made solo and partnership-level medical practices untenable, forcing them into hospital employment or sale of their practices to non-hospital businesses. Thanks to Medicare’s granting hospitals the ability to charge a facility fee in addition to the physician’s fee for a visit, a clinician’s time was worth more in a hospital than in a physician-owned practice. Because many of these elite multispecialty clinics had relatively small acute care hospital capacity, they could not offset the inflationary ravages of rising care expenses on their operations with hospital facility fees as could their larger regional hospital competitors.

The normative assumption of Medicare policymakers has been physicians will simply increase their volumes — i.e., perform more services than patients actually need — to make up the shortfall. This assumption has become a self-fulfilling prophecy, as many of the new owners of many physician practices — private equity firms and hospital systems — indeed heighten volume-based incentives in physicians’ compensation plans, as well as raise rates to private payers to cover the shortfall.

Health care politics have also played a role in the demise of freestanding medical groups. Unlike the hospital industry, which has been a unified and powerful voice on Medicare payment policy, advocacy on behalf of physician payment has been fragmented based on dozens of specialty medical societies (as well as handicapped by the fact that some specialty physicians earn $1 million a year or more). Fragmented advocacy has especially damaged the “have-not” subspecialties such as pediatrics, psychiatry, family practice, and general internal medicine, which are destined to struggle yet more in the years ahead.

The failure of the elite multispecialty medical groups, which practiced value-based care long before it became a policy touchstone, is an indictment of federal physician payment policy. A possible policy justification for holding Medicare’s fee schedule underwater for the past decade was to make fee-for-service medicine less attractive vs. “value-based care” and to set the stage for the end of fee-for-service Medicare payment. Organizations like Geisinger and Virginia Mason, whose core values favored conservative medical practice, were the losers — and they paid with the loss of their independence. The policy community has loudly decried the corporatization of physician practice, ignoring the catalytic role of physician payment policies it has supported. The slow strangulation of the Part B Medicare fee schedule has been the root cause of the demise of these important groups.

As Congress seems to be preparing to cut hospitals’ site-of-service payments/facility fees, it makes sense to plow every penny saved into increasing Medicare’s Part B fee schedule payments for primary care and cognitive physician services, hopefully through capitation rather than fee payments. Whether this modest gain would be enough to stem the net shrinkage of physicians in these crucial specialties, or save the remaining struggling multispecialty groups, remains to be seen.

These elite multispecialty groups have not disappeared from the scene. But they are no longer governed by the clinicians themselves, and what their new owners will do with their proud heritage of clinical excellence remains to be seen.

Jeff Goldsmith is president of Health Futures Inc. and is an independent strategy advisor and policy analyst. He received no compensation for this essay and is not employed by or advises any of the enterprises mentioned above. He would like to thank Glenn Steele, Robert Berenson, Don Crane, and Trevor Goldsmith for their feedback on the article.